Citation: 2010TCC529
Date: 20101027
Docket: 2010-73(IT)I
BETWEEN:
KHELIFA LACHABI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
V.A. Miller, J.
[1]
The Appellant has
appealed the reassessment of his 2002, 2003, 2004 and 2005 taxation years and
the assessment of his 2006 and 2007 taxation years. The issues raised in this
appeal are whether the Appellant had business losses of $6,066 and $4,282 in
2004 and 2005 respectively and whether the Appellant can deduct support
payments in each of the years under appeal.
[2]
As a preliminary
matter, counsel for the Respondent made a motion to have the appeals quashed
for the 2002, 2003, 2006 and 2007 taxation years on the basis that the
Appellant had not served a Notice of Objection in respect to these years. In
support of its motion, counsel filed the affidavit of Emil Varden, an officer
of the Toronto Litigation Office of the Canada Revenue Agency (the “CRA”). That
affidavit disclosed that the result of the reassessment of the 2002 taxation
year was that there were no federal taxes owing. The affiant also stated that
the Appellant’s 2003 taxation year was reassessed on October 18, 2005; his 2006
taxation year was assessed on April 7, 2008; and his 2007 taxation year was assessed
on July 30, 2009. The Appellant did not serve a Notice of Objection to these
assessments nor did he make an application to extend the time to serve an
objection.
[3]
As a precondition to
appealing to this court, a taxpayer must serve a notice of objection to an
assessment on the Minister of National Revenue (the “Minister”). Section 169 of
the Income Tax Act (the “Act”) reads as follows:
169. (1) Appeal
-- Where a taxpayer has served notice of objection to an assessment under
section 165, the taxpayer may appeal to the Tax Court of Canada to have the
assessment vacated or varied after either
(a)
the Minister has confirmed the assessment or reassessed, or
(b) 90 days
have elapsed after service of the notice of objection and the Minister has not
notified the taxpayer that the Minister has vacated or confirmed the assessment
or reassessed,
but no appeal
under this section may be instituted after the expiration of 90 days from the
day notice has been mailed to the taxpayer under section 165 that the Minister
has confirmed the assessment or reassessed
[4]
In respect of the 2002 taxation
year, there is no appeal from a notification that there is no tax owing[1].
[5]
The Respondent’s motion is granted
and the appeals for the 2002, 2003, 2006 and 2007 taxation years are quashed.
[6]
The Appellant was the only witness
at the hearing. He was represented by Paul Tardif, an agent.
Support
Payments
[7]
The Appellant is seeking to deduct
the amounts of $15,674 and $12,000 in 2004 and 2005 respectively which he
stated he paid as support payments to his former spouse.
[8]
The Appellant’s testimony was as
follows. He came to Canada from Jakarta, Indonesia in 1997. In 1998, he enrolled in the business
administration program at Laval University in Quebec City. He graduated in 2001 with his Bachelor’s degree.
[9]
In 1998, the Appellant married
Huda Brik, a non-resident of Canada. At the time of their marriage, Ms. Brik was living
in Indonesia. The Appellant applied in 1998 to Citizenship and
Immigration Canada to have his wife join him in Canada and this application was
refused in 2001. A daughter, Nadine, was born to the Appellant and his wife on
April 30, 1999. In February 2002, his wife applied for a divorce which was
granted on September 9, 2002.
[10]
The Decision for the divorce was
written in the Indonesian language as it was from the West Jakarta Religious Court (the “Court”). The Appellant stated that he had
translated the Decision for this court’s consideration because there was no one
else in Toronto who could translate from Indonesian to English.
[11]
According to the Decision, the
Appellant’s former spouse sought 210,000,000 rupiah to pay for living expenses
which she had incurred during the marriage. She asked that this amount be paid
immediately and in a lump sum. She also sought maintenance and education
support for their daughter, Nadine, in the amount of 3,000,000 rupiah. The West Jakarta Religious Court considered the requests and denied the child support
on the basis that it did not know the Appellant’s income or his whereabouts.
The Court wrote that the Appellant “should pay the Petitioner living expenses
mentioned above and pay legal fee, which until now calculated at Rp. 194,000”.
[12]
The Appellant stated that he was
unable to make a lump sum payment to his former spouse and they agreed, during
a telephone conversation, that he could pay her the amount in installments. He
tendered a document (exhibit A-1, document #5) which purports to be signed by
his former spouse. The document has the heading “DECLARATION LETTER” and it, as
well, was translated by the Appellant. In this letter, it is written that the
former spouse received the following amounts from the Appellant:
|
YEAR
|
AMOUNT
|
|
2002
|
$389
|
|
2003
|
12,000
|
|
2004
|
15,674
|
|
2005
|
6,000
|
|
2006
|
11,750
|
|
2007
|
12,200
|
|
2008
|
8,000
|
|
2009
|
8,000
|
|
TOTAL
|
$74,013
|
[13]
When I review the evidence, the
pleadings and the representations made on behalf of the Appellant, I question
whether the amounts listed in the Declaration Letter were ever made. First, the
deductions for support payments claimed by the Appellant in his income tax
returns do not match the amounts he now says he paid. According to the
assumptions in the Reply to Notice of Appeal, the Appellant claimed the
following deductions for support payments in his income tax returns:
a) In
2003, he deducted $883 as “other deductions”;
b) In
2004, he deducted $15,674 as support payments;
c) In
2005, he deducted $12,000 as a business investment loss;
d) In 2006 and 2007, he deducted $11,750 and
$12,200 as support payments
[14]
Second, in his written
representations, Mr. Tardif wrote that the Court award of 210,000,000 rupiah
plus the legal expenses of 194,000 rupiah converted to $40,400 Canadian
dollars. I have used the conversion rate that he quoted and I find that the
award in Canadian dollars is $39,936.86. Regardless, I find it implausible that
the Appellant would pay his former spouse the amount of $74,013 which was more
than the amount awarded. It is also questionable whether the Appellant had the
ability to pay the amount of money which he now says he paid. According to the
agent’s representations, the Appellant earned “no more than $24,000” in 2003
and 2004.
[15]
Finally, the Appellant did not
have any independent evidence to support his assertions. The two documents
submitted to this court were translated by the Appellant. He did not produce
any cancelled cheques or any documents to show that he had actually paid the
amounts in issue.
[16]
Assuming that the amounts were
paid, they are deductible only if they are support amounts. The term “support
amount” is defined in the Act as follows:
56.1 (4) Definitions -- The definitions in this subsection apply in this section and
section 56.
"support
amount" means an amount
payable or receivable as an allowance on a periodic basis for the maintenance
of the recipient, children of the recipient or both the recipient and children
of the recipient, if the recipient has discretion as to the use of the amount,
and
(a) the
recipient is the spouse or common-law partner or former spouse or common-law
partner of the payer, the recipient and payer are living separate and apart
because of the breakdown of their marriage or common-law partnership and the
amount is receivable under an order of a competent tribunal or under a written
agreement; or
(b) the payer
is a legal parent of a child of the recipient and the amount is receivable
under an order made by a competent tribunal in accordance with the laws of a
province.
[17]
According to the Decision given by
the West Jakarta Religious Court, it did not order the Appellant to pay a support
amount to his former spouse. The amount ordered was not payable as an allowance
on a periodic basis for the maintenance of the former spouse. The amount was to
be paid as a lump sum and it was for living expenses and legal expenses already
incurred by the former spouse and not for her maintenance in the future.
[18]
The agreement between the
Appellant and his former spouse did not alter the character of the Court award
from a lump sum award to periodic payments. The payments listed in paragraph
12, herein, were not made on a periodic basis. The Appellant stated that he and
his former spouse had agreed that the payments would be made when he could
afford them over the period from 2002 to 2009. The payments, if they were made,
were made for a fixed term. The payments were capital in nature[2] and they are not deductible
by the Appellant.
Business Losses
[19]
In 2004 and 2005, the Appellant
provided translation services to different organizations at their place of
business. The Appellant reported the following income and expenses:
|
|
|
|
2004
|
2005
|
|
Professional fees
|
$
2,972
|
$
1,179
|
|
|
|
|
|
Expenses
|
|
|
|
Association fees &
donation
|
120
|
|
|
Liability insurance
|
85
|
92
|
|
Bank interest &
charges
|
168
|
188
|
|
Maintenance &
repairs
|
380
|
513
|
|
Administration
|
2,039
|
2,625
|
|
Promotional gifts (50%)
|
1,500
|
750
|
|
Office expenses
|
189
|
95
|
|
Accounting & legal
|
135
|
107
|
|
Rental space
|
1,980
|
|
|
Transportation &
travel
|
3,190
|
798
|
|
Equipment &
supplies
|
1,801
|
901
|
|
Total expenses
|
11,587
|
6,069
|
|
Home business expense adjustment
|
2,549
|
608
|
|
Deductible expenses
|
$
9,038
|
$5,461
|
|
|
|
|
|
Net business income (loss) deducted from
income
|
(6,066)
|
(4,282)
|
[20]
There was some confusion in the
Appellant’s testimony. In direct examination, he stated that he had a home
business and he submitted all receipts to the CRA. He did not tender any
receipts at the hearing of his appeal. In cross examination he said that he had
moved in 2005 and that he had lost all of his receipts.
[21]
The Appellant described each of
the expenses that he claimed. The professional fees were a donation to UNICEF
as he did translation work for them and he thought it was good business to give
them a donation. The liability insurance was for his home office. The
Administration expenses were the cost of an electronic dictionary and
newspapers. The expenses for Promotional gifts were actually the costs of meals
he consumed during lunch time. The Office expenses were a portion of his costs
for the telephone, fax and internet in his apartment. In 2004, he paid $750
monthly for a bachelor apartment and he claimed $300 monthly as a business
rental expense. The Equipment and Supplies expenses were for a laptop computer
in 2004 and an upgrade to his software in 2005.
[22]
As a translator, the Appellant
could earn $24/hr if he was hired by the Immigration and Refugee Board; $32/hr
if he was hired by a court and $26/hr if he was hired by Citizenship and
Immigration Canada. However, he could only earn a maximum of $24,000 annually
and then he would not receive any further contracts with the government for
that year. The Appellant stated that he sometimes had two hearings a day and
that he traveled at least 15 times to Ottawa for work. I doubt that the Appellant received the
number of contracts that he alleged. He reported that he earned only $2,972 and
$1,179 in 2004 and 2005 from his work as a translator.
[23]
The onus was on the Appellant to
show that the assessments were incorrect. This he has not done. As stated by
the Federal Court of Appeal in Njenga v. Canada, [1996] F.C.J. No. 1218 at paragraph 3:
3
The Income tax system is based on
self monitoring. As a public policy matter the burden of proof of deductions
and claims properly rests with the taxpayer. The Tax Court Judge held that
persons such as the Appellant must maintain and have available detailed
information and documentation in support of the claims they make. We agree with
that finding. Ms. Njenga as the Taxpayer is responsible for documenting her own
personal affairs in a reasonable manner. Self written receipts and assertion
without proof are not sufficient.
[24]
For all of these reasons, the
appeals are dismissed.
Signed at Ottawa,
Canada, this 27th day of October 2010.
“V.A. Miller”
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